Correlation Between CKM Building and Prime Oil

Can any of the company-specific risk be diversified away by investing in both CKM Building and Prime Oil at the same time? Although using a correlation coefficient on its own may not help to predict future stock returns, this module helps to understand the diversifiable risk of combining CKM Building and Prime Oil into the same portfolio, which is an essential part of the fundamental portfolio management process.

By analyzing existing cross correlation between CKM Building Material and Prime Oil Chemical, you can compare the effects of market volatilities on CKM Building and Prime Oil and check how they will diversify away market risk if combined in the same portfolio for a given time horizon. You can also utilize pair trading strategies of matching a long position in CKM Building with a short position of Prime Oil. Check out your portfolio center. Please also check ongoing floating volatility patterns of CKM Building and Prime Oil.

Diversification Opportunities for CKM Building and Prime Oil

0.78

Correlation Coefficient

CKM Building  Prime Oil

Poor diversification

The 3 months correlation between CKM and Prime is 0.78. Overlapping area represents the amount of risk that can be diversified away by holding CKM Building Material and Prime Oil Chemical in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Prime Oil Chemical and CKM Building is a relative statistical measure of the degree to which these equity instruments tend to move together. The correlation coefficient measures the extent to which returns on CKM Building Material are associated (or correlated) with Prime Oil. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Prime Oil Chemical has no effect on the direction of CKM Building i.e., CKM Building and Prime Oil go up and down completely randomly.

Pair Corralation between CKM Building and Prime Oil

Assuming the 90 days trading horizon CKM Building Material is expected to generate 2.05 times more return on investment than Prime Oil. However, CKM Building is 2.05 times more volatile than Prime Oil Chemical. It trades about 0.31 of its potential returns per unit of risk. Prime Oil Chemical is currently generating about 0.2 per unit of risk. If you would invest  3,440  in CKM Building Material on December 25, 2024 and sell it today you would earn a total of  810.00  from holding CKM Building Material or generate 23.55% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Significant
Accuracy	100.0%
Values	Daily Returns

CKM Building Material  vs.  Prime Oil Chemical

CKM Building Material

Risk-Adjusted Performance

Solid

Compared to the overall equity markets, risk-adjusted returns on investments in CKM Building Material are ranked lower than 24 (%) of all global equities and portfolios over the last 90 days. In spite of fairly abnormal basic indicators, CKM Building showed solid returns over the last few months and may actually be approaching a breakup point.

Prime Oil Chemical

Risk-Adjusted Performance

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Prime Oil Chemical are ranked lower than 15 (%) of all global equities and portfolios over the last 90 days. In spite of fairly abnormal basic indicators, Prime Oil may actually be approaching a critical reversion point that can send shares even higher in April 2025.

Pair Trading with CKM Building and Prime Oil

The main advantage of trading using opposite CKM Building and Prime Oil positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if CKM Building position performs unexpectedly, Prime Oil can make up some of the losses. Pair trading also minimizes risk from directional movements in the market. For example, if an entire industry or sector drops because of unexpected headlines, the short position in Prime Oil will offset losses from the drop in Prime Oil's long position.

The idea behind CKM Building Material and Prime Oil Chemical pairs trading is to make the combined position market-neutral, meaning the overall market's direction will not affect its win or loss (or potential downside or upside). This can be achieved by designing a pairs trade with two highly correlated stocks or equities that operate in a similar space or sector, making it possible to obtain profits through simple and relatively low-risk investment.

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Note that this page's information should be used as a complementary analysis to find the right mix of equity instruments to add to your existing portfolios or create a brand new portfolio. You can also try the Commodity Channel module to use Commodity Channel Index to analyze current equity momentum.